Germany: Housing is almost unaffordable

Germany is traditionally a nation of tenants. While across Europe around 70% of the population own the house or apartment they live in, only 46% of people living in Germany do so. In major cities, that ratio is even lower. 

If you want to rent a nice apartment in a good location in Berlin, you need a lot of money. A "wonderfully spacious 4-room apartment" in Berlin's upmarket Charlottenburg district: 182 square meters, furnished, the rent is €8,190 ($8,947) per month. Plus heating, electricity and other incidental costs, that amounts to over €50 per square meter.

A so-called rental price cap was included in the German Civil Code in June 2015. According to this, when signing a new rental agreement, the rent may not be more than 10% above the local comparative rent. But in Berlin and other large cities, landlords have found a lucrative way around this: The cap does not apply to furnished apartments and contracts for short rental periods. So now, more than half of all apartments in Berlin are offered as "furnished." 

A rent level of €6.50 to €7.50 per square meter is considered socially acceptable in Germany. But for that price, you can't even find an apartment on the outskirts of Berlin these days. The online platform lists an apartment in an eastern suburb of Berlin — on the sixth floor without an elevator. In view of the need for renovation, the tenants should be "talented in handicrafts," the advertisement reads.

In Germany, the average net income — the amount that remains after taxes and social security payments have been deducted — currently stands at €2,165, according to the Federal Statistical Office. Around one-third of this income is spent on rent. But even that is often not enough.

In Munich, a square meter now costs €19 in rent, in Stuttgart €18, in Dusseldorf and Cologne €12 to €13 and in Berlin €11. "High demand for affordable housing meets historic rent increases and a supply that is vastly insufficient," reads a recent evaluation on the online portal Immoscout24.

Real estate prices on the rise again

Real estate prices are rising worldwide. In a study, the ifo Institute and the Institute for Swiss Economic Policy found that an average annual price increase of 9% can be expected over the next 10 years. For Germany, that figure is put at 7%. If increased interest rates on loans are taken into account, buying a house or apartment becomes unaffordable for many Germans. The only affordable option are older houses that have old fossil fuel heating systems that will have to be replaced over the next few years.

With no option to buy property, renting is the only alternative. This exacerbates the shortage on the rental market and leads to further price hikes there.

According to a study by the Eduard Pestel Institute for Systems Research, Germany lacks more than 700,000 apartments — especially in the affordable segment. The German government had announced plans to build 400,000 new homes per year. In reality, just over half will be achieved this year, and in 2024 the target will be missed by an even greater margin. This was calculated by the trade union-affiliated Macroeconomic and Business Cycle Research Institute.

The Ukraine war and inflation have driven up construction costs. There is a shortage of skilled workers and building materials, and work is being halted at many construction sites. 

Nothing left to rent

More and more people are competing for the few remaining affordable apartments. Of the refugees who arrived in the country in 2015/2016, around 25% are still living in a state-run refugee shelter because they have not yet been able to find a place of their own. In 2022, more than one million war refugees arrived in Germany from Ukraine.This year, around 300,000 asylum seekers are expected to come.

The state-subsidized construction of apartments is an option for those in society who cannot afford the rents on the free housing market. But German governments have neglected the "social housing scheme" for decades. 

At the end of 2022, there were only just under 1.1 million social housing units nationwide — a historic low. The socialist Left Party proposes a public housing program and a special fund for affordable housing.

But the current government wants to limit public borrowing and adhere to the so-called debt brake. In May, Federal Construction Minister Klara Geywitz from the center-left Social Democrat party (SPD) increased the housing allowance — that is the state subsidy for rent costs — and the group of those entitled to it was expanded. But this is seen as just a drop in the ocean.

Adequate housing is a human right, says the Workers' Welfare Association. But NGOs are warning that housing is becoming an existential problem for more and more people, which could turn out to be explosive. 

Critics warn there needs to be a financial incentive for investors to put their money into the construction of housing. But things are unlikely to improve in the short term on Germany's housing market.

This article was originally written in German.

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